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The Export-Import Bank: A dinosaur that needs to go extinct

Senator Mike Lee and Congressman Justin Amash have introduced companion bills in the Senate and House to repeal the authority of the Export-Import Bank, which is up for re-authorization this year.

Another federal dinosaur is up for a re-authorization, and after 8 decades of existence it is time for this agency to be disbanded. The Export-Import Bank of the United States was established by an executive order of Franklin Delano Roosevelt in 1934 to assist trade relations between America and the Soviet Union. Transformed throughout the years, this federal agency, backed by taxpayer dollars, has evolved into a corporate welfare program for businesses that need loans to expand their product markets overseas. Simply described as a subsidy program for special interests, the Ex-Im Bank has outlived its need for existence.

The two main goals of the Export-Import Bank were, first, to provide loans to American businesses or projects that the free market would view as too risky to invest in, and second, to lend only to projects that would result in a reasonable return on the investment. These two purposes are in many senses contradictory. If the private market is not willing to invest in a project then that is a signal that the project is too risky or unprofitable; yet it is these projects that Ex-Im has evolved to support.

The Ex-Im Bank claims that it does not directly compete with private investors in the market place and therefore fills a hole in the market that the private sector leaves open. This logic in itself is flawed, and the intervention of the Ex-Im Bank is magnified due to the fact that it is not a neutral entity. Unlike an irresponsible but fair investing party that goes around supporting across-the-board high-risk projects and losing money on investments, the Ex-Im Bank creates distortions in the market by providing subsidies for hand-picked, risky projects in certain politically favored industries. Some of the bank’s most recent favoritism has been directed toward renewable energy business start-ups and businesses wanting to get involved in the African economy1. The fundamental question that needs to be asked at this time of the federal agency’s renewal is if the bank should be in existence in the first place in regards to its effects on America’s export market in the global economy.

Proponents of the Ex-Im Bank point to the fact that it is largely self-funded, and poses little risk to the taxpayer. However, this is only true if its investments are sound. By investing in high-risk projects and businesses, the Ex-Im Bank takes on the risk of losing a huge amount of capital and falling into massive debt, leaving tax payers to foot the bill, an occurrence that we have already gotten a taste of back in 1987 when the bank received a $3 billion bailout2. Currently, the Ex-Im Bank is allowed to borrow up to $140 billion to subsidize American exports.

If Ex-Im Bank’s purpose is to improve America’s economy and its export market, has improvement actually been made? Ex-Im Bank’s two purposes rely on the assumption that if an American supplies a good and a foreigner buys it, then the market has expanded. However, when the export is priced artificially low due to subsidies, there are consequences. When a product is subsidized, foreigners purchase more American products because they are sold at a cheaper rate than they would be if the prices were set naturally in the market. When these products are purchased, foreigners need US dollars, leading to an increase in dollar demand. The value of the dollar thus increases. Back in the United States, this increase in value leads Americans to purchase more imports because they are able to get more for every dollar they spend. This increased activity and competition in the market leads exports to rise in value. When this rise in price takes place, the purchasing of American exports drops because they are no longer cheap, resulting in the need of more subsidies in order to keep the prices low. And so the cycle goes. The Government Accountability Office states that the “Ex-Im Bank programs cannot produce a substantial change in the U.S. trade balance"3. So, even though its actions may increase the demand for a product for a limited amount of time, eventually that increase will be leveled out by natural market responses.

In the end then, the large scale effects of Ex-Im Bank are minimal and doing very little to help general American economic interests. Rather than subsidizing small start-up businesses, the Ex-Im Bank has transformed into a cash cow for a select group of large businesses. For example, in 2010 a group of ten businesses received more than 92% of the bank’s allotted investments, 44% going to Boeing (with another $12.2 billion being funneled its way through 2012)4. The Ex-Im Bank’s 10% that does get distributed to small, risky businesses has seen the financial returns that are highlighted in the stories of Solyndra and Enron. With this history of fund distributions, it is hard to justify the existence of this federal giant when the majority of its funding goes to huge corporations that privately have the financial ability to push their exports abroad.

The Export-Import Bank has no legitimate role to play in the American economy that could not be fulfilled through the private sector. Its influence as an anti-free-market, government tool used to pick winners and losers is not improving American trade but is corporate welfare. It is cherry picking the special interest receivers of funds and is placing tax payers at risk by funneling billions of dollars in projects that have a track record of failure. The Export-Import Bank and its business of corporate welfare needs to be terminated before the risks that it is incurring are directly shifted upon the shoulders of the average American.